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Roadmap to nowhere

What will future generations of personal finance historians make of 2005 and what can we look forward to in 2006?

I think we can safely say that last year was a washout for just about every group, including consumers and IFAs.

Pensions were probably the most important issue where we were not only supposed be offered some vague signposts towards a proposed solution but a definitive roadmap with strict timelines.

After two years of telling everyone to wait for the Pensions Commission report for answers to the so-called pension crisis, ministers became strangely silent when the report was published in late November.

Small wonder. The commission, chaired by former CBI boss Adair Turner, proposed raising the state pension to the equivalent of 110 a week for a single pensioner and linking it to earnings, not inflation.

Turner also recommended raising the retirement age to 67, rising to 69, and setting up a save-as-you-go pension into which employers would have to pay a minimum of 3 per cent and staff 5 per cent or 4 per cent after tax relief.

Yet before the report was even published, it had been subjected to a devastating and possibly near-fatal critique from the man most people consider is best placed to either implement the report or throw it on a bonfire – Chancellor Gordon Brown.

Selective briefings from Treasury officials told us that Brown was challenging one of the key underlying assumptions in the report – the future costs of the Pensions Commission proposals.

Turner was able to show subsequently that inflationary cost assumptions were mostly inaccurate but the venom inherent in the Treasury’s leaks suggested that any reforms that take place will be over the Chancellor’s dead body.

Given how commentators were told for many months that anything they had to say should be put on hold until publication of the Turner report, it will be interesting to see how the politicians squirm their way out of this one in 2006.

In the Chancellor’s pre-Budget announcement last month, he spectacularly scrapped rule changes which would have allowed self-invested personal pensions to hold residential property, just four months before they were due to come into force.

Many of the pension reforms that will be introduced after A-Day are still important, especially the ability to put the equivalent of an entire annual salary, up to 225,000 each year, into a pension. But without the lure of residential property, who will bother? Apart from the very rich, of course, but weren’t they the ones Gordon was meant to be discouraging from treating pensions as a tax-avoidance vehicle?

Elsewhere, there was good news for up to two million children born after September 2002, who received child trust fund vouchers worth a minimum of 250. The vouchers were posted to parents in the weeks immediately before general election in May. A pity, then, that by the end of December, more than 900,000 vouchers were still lying unused on mantlepieces or in kitchen drawers.

Without parental contributions in 2006 and beyond, this one looks to be a case of the trust fund that rolled up and rolled up in a high-interest account or similar and delivered some magnificent sum at maturity, like 900 or 1,000, tops.

Also with an eye on the election, perhaps, the Chancellor announced in his April Budget that the previous 60,000 stamp duty threshold, above which homebuyers paid a 1 per cent charge on their property purchase, would be doubled to 120,000. The Treasury estimates that some 300,000 homebuyers each year will now fall out of the stamp duty net.

But only about 80,000 of them are in the South-east of England, where property prices are much higher than elsewhere in the UK.

Still, we all know that Southerners are overpaid lads and lasses, so it is only fair that they should hand Gordon cheques worth thousands of pounds for the privilege of living in Reading, Basingstoke or Chelmsford, innit?

Other announcements included an increase in the inheritance tax threshold to 275,000 in the current tax year, 285,000 in 2006/07 and 300,000 in 2007/08. Despite this seeming largesse, experts pointed out that the increases are only marginally above inflation.

Elsewhere, after originally planning to downgrade the savings limits in tax-free Isas to 5,000 from 2006/07, the Chancellor announced that they will remain at their current 7,000 level until 2010. Shame that no one can be bothered to invest in an Isa but at least the intention was there.

Meanwhile, there were even more delays for up to 80,000 employees whose occupational pension schemes were wound up, leaving their pension hopes in tatters. Parliamentary Ombudsman Ann Abraham, who started an investigation a year ago, was supposed to report in November but will not now be reporting until March this year.

Finally, good news of sorts for millions of borrowers. After years of fence-sitting and regulatory equivocation (those splinters must have been so painful), the Office of Fair Trading finally announced an inquiry into payment protection insurance sold by lenders alongside their loans. The FSA also weighed in with an investigation into the way these products are sold.

The OFT inquiry into this 6bn a year scam, where policies can add up to 30 per cent to the cost of a loan, followed a super-complaint to the OFT from Citizens’ Advice – and years of campaigning from consumer groups, journalists and even some IFAs. Good news on this front in 2006? Let’s hope so.


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